Fare Games

Afew months ago, a team of trained researchers infiltrated the rush-hour crowds in midtown Manhattan, took up positions on busy street corners, and began gesticulating wildly. No one noticed, because the researchers were doing what a lot of other people were doing: attempting to flag down a cab. You may not be surprised to hear that they didn't have much luck. The researchers' experiment proved, as such experiments often do, what most civilians already knew. “There are times of the day and parts of midtown where it is virtually impossible to find a cab,” Bruce Schaller, the transportation consultant who designed the study, told me last week.

New York has a taxicab crunch. In recent years, according to Schaller, cabs have carried passengers sixty-five per cent of the time they're in operation. That figure is high, historically speaking, and although after September 11th ridership fell as tourism slumped, the bigger picture still looks the same: too many passengers, too few cabs.

The taxi industry has a simple answer to this problem: raise fares. In November, the big fleet owners petitioned the Taxi and Limousine Commission for a twenty-three-per-cent fare hike. And last month Mayor Bloomberg added his support, though he didn't commit to a particular number. Raising fares, Bloomberg said, is the only way to insure that there will be enough cabs on the streets.

On the face of it, raising prices would seem to be the perfect solution: the more money cabbies can make, the more cabs there will be. But the taxi business doesn't work that way. It's not as if, when prices go up, someone can just slap a coat of yellow paint on a Crown Victoria and start collecting fares. To operate a cab in New York, you need a medallion. And the city has frozen the supply of medallions at around twelve thousand. If there are too few cabs on the road, it's not because of low fares. It's because the city—under pressure from fleet owners, among others, who contribute generously to the right politicians—has kept the number of medallions artificially low. In fact, New York has almost ten thousand fewer cabs today than it did seventy years ago.

But it isn't just cabs that are in short supply; it's cabbies as well. And that, too, is an unintended consequence of the medallion system. Since it's a rare cabbie who can scrounge up two hundred thousand dollars to buy a medallion, most cabbies work for somebody else—the big corporate fleets or management companies that own the medallions. Once upon a time, that wasn't such a bad deal. Cabbies used to work on commission, splitting their take with the fleet owners. (Even Travis Bickle managed to make a decent living.) But in 1979 the city decided to allow leasing. Today, most cabbies have to pay their lease rate up front (about a hundred dollars a day) and pay for their own gas; they get to keep what they make during their shift. Essentially, cabbies are like sharecroppers: their day is spent trying to dig themselves out of a hole. Because lease rates are high, the cabbies have a hard time doing that. It's not uncommon for a driver to put in a twelve-hour day and clear less than a hundred bucks. It isn't much of a career.

If the taxi industry really wants more drivers, it should offer better wages, which means that it should cut its lease rates. The fleet owners might earn a little less, but they can afford to. The price of a medallion has quadrupled in the past twenty years, which suggests that running a fleet is a pretty good way to make a profit.

Taxi owners argue that raising fares would be enough to boost drivers' wages and, consequently, put more cabs on the streets. But the big winners would probably just be the owners themselves. The last time fares went up, in 1996, owners responded by raising their lease rates. If another fare hike goes through, they'll probably do it again (if the city will let them). Maybe taxi fares should be higher, but if the goal is to get more cabbies on the road, then a fare hike alone won't do the trick.

In fact, even if the drivers did get most of the money from a fare increase, midtown would not suddenly be flush with available cabs. Taxi-drivers tend not to respond to such incentives. Rather, they engage in what economists call “daily income targeting.” According to a 1997 study by four behavioral economists, cabbies set themselves a target every day and work only as much, or as little, as they must to reach it (“I needed one more fare to make my night,” Harry Chapin sang in “Taxi”). On days when passengers are abundant, cabdrivers work fewer hours, and on slow days they work more. This isn't exactly income maximizing. What they should do is work more when business is good and less when it's bad. The economists found that if cabbies did this, they could boost their income by fifteen per cent. But since they don't, raising fares will mean that drivers will hit their daily targets sooner and knock off earlier. Indeed, after the 1996 fare hike, Schaller says, cabbies wound up driving slightly less.

If we really want to increase the supply of cabs, the simplest thing to do is increase the supply of cabs. The city could auction off new medallions, as it did six years ago, when it sold four hundred new ones. Selling a thousand more medallions would put a thousand more taxis on the streets. And New York would reap a nice little dividend: two hundred million dollars or so, which would come in handy, in these lean budgetary times. How often does the city get a chance to improve its standard of living and fatten its coffers at the same time? Maybe this makes too much sense to work, but someday, as a famous cabbie once said, a real rain will come.

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